Greetings, and welcome to the DURECT Corporation Fourth Quarter and Fiscal Year-End 2019 Earnings Conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mike Arenberg, Chief Financial Officer. Thank you. You may begin.

Michael H. Arenberg, DURECT Corporation – CFO (2)

Good afternoon, and welcome to our fourth quarter 2019 earnings conference call. This is Mike Arenberg, Chief Financial Officer of DURECT Corporation. I will provide a brief review of our financial results; and then Jim Brown, our President and CEO, will provide an update on our programs. We will then open up the call for a question-and-answer session.

Before beginning, I would like to remind you of our safe harbor statement. During the course of this call, we may make forward-looking statements regarding DURECT’s products and development, expected product benefits, our development plans, future clinical trials or projected financial results. These forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Further information regarding these and other risks can be found in our SEC filings, including our 10-K and 10-Qs under the heading Risk Factors.

Let me now turn to our financials. Total revenue in Q4 2019 was $10.7 million compared to $3.6 million in Q4 2018. Q4 2019 included $6.1 million recognized from deferred revenue associated with the Gilead license agreement. Adjusting for this, total revenue was $4.6 million in Q4 2019 versus $3.6 million in Q4 2018. Excluding the recognition of deferred revenue, collaborative revenue for Q4 2019 was up about $350,000 or 45% compared to Q4 2018. Product revenue, largely from the sale of ALZET pumps and LACTEL Polymers, was $3.4 million in Q4 2019 as compared to $2.9 million in Q4 2018. This 20% increase was driven by LACTEL Polymer sales. For the year as a whole, the product revenues from ALZET and LACTEL were $11.4 million as compared to $10.4 million in 2018. The gross margin for the combined product lines was 59% in Q4 2019. These product lines continue to be strongly cash flow positive.

R&D expense was $9.5 million in Q4 2019 as compared to $5.9 million in Q4 2018, primarily due to higher clinical trial expenses for DUR-928 as well as higher costs associated with POSIMIR to prepare for the advisory committee meeting. SG&A expenses were $3.8 million in Q4 2019 as compared to $3.5 million in Q4 2018. Our underlying burn rate during this quarter was $5.3 million, although it should be recognized that this benefited from $1.7 million in proceeds from option exercises. At December 31, 2019, we had cash and investments of $64.8 million compared to $34.5 million at December 31, 2018.

With that, thanks again for joining our call, and I will now turn the call over to Jim for an update on certain of our programs.

Thank you, Mike, and hello, everyone. The fourth quarter of 2019 was a strong one for DURECT and capped off a very good year for the company. The following are highlights from the fourth quarter. Based on the impressive data from DUR-928 Phase IIa alcoholic hepatitis, or AH trial, the American Association for the Study of Liver Disease or AASLD, granted an oral late-breaking slot to present the trial results at their annual conference known commonly as the Liver Meeting. Dr. Tarek Hassanein, who is one of our principal investigators, presented the trial results, including impressive data on important endpoints like bilirubin, Lille and MELD scores. A large audience attended the presentation and the data were well received.

These study results were also honored with the inclusion in the Best of The Liver Meeting summary slide deck in the alcohol-related liver disease category. In addition, Dr. Craig McClain from the University of Louisville, presented a poster at the Liver Meeting showing the — that severe AH patients treated with DUR-928 in our study had significantly better outcomes as compared to similarly severe AH patients treated with corticosteroids in a contemporaneous study.

We also made good progress with enrollment in the 28-day NASH study in the fourth quarter, so much so that today, we announced that we have achieved the goal of the study by enrolling 60 patients. In fact, we will end up with more than 60 patients with the last patient scheduled to be dosed next week.

We also announced data from the psoriasis trial. And although the active did not outperform the placebo group. Interestingly, both groups showed significant improvement over baseline.

With regard to POSIMIR, based on our interactions with the FDA since our advisory committee meeting in January, we believe the FDA is actively conducting their review of our pending application.

And one last point, we ended the year with $64.8 million in cash, which is almost twice the cash with which we started the year.

All that being said, our primary focus remains on our epigenetic regulator program and the lead compound, DUR-928. DUR-928 is a naturally occurring first-in-class small molecule that plays an important regulatory role in the vital functions of lipid homeostasis, inflammation, cell survival and tissue regeneration. It may have broad applicability in acute organ injuries, such as alcoholic hepatitis and in chronic liver diseases such as NASH.

We are currently developing DUR-928 for alcoholic hepatitis by injection and for nonalcoholic steatohepatitis or NASH by oral dosing.

I’ll begin with an update on our alcoholic hepatitis program. AH represents a significant unmet medical need with no approved therapies. AH is an acute form of alcoholic liver disease or ALD, that’s associated with long-term heavy intake of alcohol and often occurs after a recent period of increased alcohol consumption. AH is typically characterized by a recent offset of jaundice and liver failure. And analysis of 77 studies published between 1971 and 2016, which included data from more than 8,000 patients, show that on average, the 1-month mortality from AH was 26%.

According to the most recent data provided by the Agency for Healthcare Research and Quality, or AHRQ, a part of the U.S. Department of Health and Human Services, there were over 117,000 hospitalizations for patients with AH in 2016. And a recent publication analyzing the mortality and costs associated with alcoholic hepatitis, estimated that the cost per patient was over $50,000 in the first year, and ALD is also one of the leading causes of liver transplants in the United States, which cost in excess of $800,000.

Last year, we completed a 19-patient Phase IIa open-label dose escalation clinical study evaluating the safety and pharmacokinetics of 30, 90 and 150-milligram doses of DUR-928 in patients with moderate and severe AH. This study used MELD to determine the AH severity in a multi-study — excuse me, a multi-center study conducted in the United States. In this trial, patients with moderate and severe AH were treated with 1 or 2 doses of intravenously administered DUR-928.

Study objectives included assessment of safety, pharmacokinetics and pharmacodynamic signals, including liver chemistry, biomarkers and prognostic scores, such as Lille and MELD. The trial results were presented at a late-breaker — as a late-breaker in a podium presentation. Dr. Hassanein, one of the trial’s principal investigator presented the results.

In a separate poster presentation, Dr. McClain presented additional comparative data from the Phase IIa clinical trial of DUR-928 with a control group of severe AH patients treated with corticosteroids in a contemporary AH study conducted at the University of Louisville. This poster showed that Lille scores from this 8 severe AH patients treated with 30 and 90 milligrams of 928 were significantly lower than those from the 13 severe patients treated with corticosteroids.

Additionally, the DUR-928 AH results were selected for inclusion in the Best of The Liver Meeting 2019 summary slide deck, in the alcohol-related liver disease category. Inclusion in this slide deck is considered to be a singular honor and indicates the high level with which the American Association for the Study of Liver Diseases Review Committee regarded this research. All 19 patients treated with 928 in this trial, survived the 28-day follow-up period, and there were no drug-related serious adverse events. Patients treated with DUR-928 had a statistically significant reduction from baseline in bilirubin at Day 7 and 28 and a model of end-stage liver disease or MELD score at Day 28. Lille scores are used in clinical practice to help determine the responses and prognosis of AH patients after 7 days of treatment. The lower the Lille score, the better the prognosis or probability of survival for an AH patient. Patients with a Lille score below 0.45, have a 6-month survival rate of 85% as compared those with Lille scores above 0.45, who have a 6-month survival rate of only 25%.

When compared with historical control group consisting of 15 AH patients with similar severity of AH at the beginning of the study, from a contemporaneous University of Louisville AH trial, the DUR-928 treated patients had statistically significantly lower Lille scores. In 928 study, the mean Lille score for the 18 AH patients treated with 928 who returned for their 7-day visits was 0.10. These companies — excuse me, this compares to a median Lille score of 0.41 for the patients in the Louisville study.

Additionally, 89% of the 928-treated patients had a Lille score below 0.45 as compared to 53% of the Louisville patients. In addition to having statistically significant lower Lille scores than those from the well matched control group of patients from the contemporaneous Louisville study, the 928-treated patients also had statistically significant lower Lille scores as to compare to historically published control groups.

74% of all 928-treated patients and 67% of those with severe AH were discharged from the hospital within 4 days after receiving a single dose of 928. The patient population typically remains in the hospital, this type of patient population for an extended period of time. 928 was well tolerated in all patients at all doses treated and were now seriously related adverse events associated with any dose level. After being discharged on Day 2, 1 patient did not return for the scheduled Day 7 or Day 28 follow-up visits. Therefore, the Lille bilirubin and MELD data I just reported are based on 18 patients.

As stated earlier, all 19 patients treated with 928, including the one that did not return for the follow-up visits, survived the 28-day follow-up period. By contrast, 2 of the 15 patients from the Louisville historical control group died in the first month.

We are working with the FDA and our advisers to finalize the Phase IIb protocol. This Phase IIb trial will be a multi-center international randomized, double-blind, placebo-controlled study in severe AH patients. We are planning to initiate the trial in the middle of this year. And based on our current working assumptions related to trial design, number of clinical sites and enrollment rates, we anticipate top line data from this trial in 2022.

The next program I’ll update is the 928 NASH program. Today, we announced that we had exceeded our 60-patient enrollment target for this multi-center U.S. NASH trial, with the final patient scheduled to be dosed next week. The trial is a Phase Ib randomized open-label clinical study evaluating the safety pharmacokinetics and biological activity of 928 in NASH patients with stage 1 to 3 fibrosis.

In this study, we’re evaluating 928 doses of 50 milligrams and 150 milligrams once a day and 300-milligram twice a day. Patients in the trial, take 928 orally for 28 consecutive days and are followed afterwards for 28 days. We’ve already enrolled approximately 20 patients per dose group, and we’ll end up with a few more than 60 patients after the final patients initiate their dosing next week.

Key endpoints for this study includes safety and pharmacokinetics, clinical chemistry and biomarkers as well as liver fat and stiffness by imaging. We remain on schedule to have all patients complete their dosing and follow-up visits in the first half of 2020 and expect to announce top line data in the middle of this year.

Nonalcoholic fatty liver disease or NAFLD is one of the most common forms of liver disease in both children and adults. It’s estimated that NAFLD affects about 30% to 40% of adults and about 10% of children in the United States. NASH, a more severe and progressive form of NAFLD, is one of the most common chronic liver diseases worldwide, with an estimated prevalence of 3% to 5% globally. No drug is currently approved for NAFLD or for NASH.

And now to our 928 psoriasis program. In January 2020, we announced the results from the Phase IIa clinical trial in patients with mild to moderate plaque psoriasis. 22 patients completed the study, applying 928 topically to the plaque on one arm and the vehicle to a similar plaque in the other arm for 28 days. DUR-928 did not demonstrate a benefit over vehicle based on the Investigator’s Global Assessment, or IGA, which was the scoring system for the primary analysis or at in any of the secondary analyses. However, at the end of the 4-week application period, patients in both the 928 and vehicle treatment group experienced significant improvement over baseline in both IGA and Local Psoriasis Severity Index, or LPSI scores. The improvement was observed as soon as 1 week after dosing. In fact, 90% of the patients in both groups had at least a 1-point reduction in LPSI score after the 4-week daily application period.

Daily topical application of 928 was well tolerated with no meaningful differences in adverse events between the treatment and the vehicle groups. Based on the top line data, we do not plan to continue development of topical 928 in psoriasis at this time. And will focus our near-term development activities on AH and NASH.

Now to our legacy drug delivery business, beginning with POSIMIR. POSIMIR is an investigational postoperative pain relief depot product that utilizes our patented SABER technology. It is designed to be administered directly into the surgical site, to deliver bupivacaine for up to 3 days after surgery. A comprehensive review of the POSIMIR program in light of the issues raised by the FDA in our communications with them, including the Complete Response Letter, was prepared and submitted as a response to the Complete Response Letter. The FDA initially assigned a user goal fee date of December 27 last year, but then scheduled an advisory meeting for January 16 of this year. And a new user fee goal date has not been assigned.

In a split vote, 6 advisory committee members voted to recommend that the efficacy, safety and overall risk-benefit of profile of POSIMIR support approval, while 6 did not support approval based on the information presented. Although the FDA considers a recommendation of the advisory committee when they make a decision, the recommendation of the panel is not binding.

The effort to evaluate the program, develop the strategy for filing the response and prepare the response has been under the direction of Dr. Lee Simon, who was formerly the FDA’s Division Director of the Analgesic, Anti-inflammatory and Ophthalmologic Drug Products. Dr. Simon also led our preparation efforts for the advisory committee meeting. Subsequent to the advisory committee meeting, we continue to interact with the FDA as they continue their review.

As a reminder, in 2 adequate and well-controlled clinical trials conducted in patients undergoing inguinal hernia repair and subacromial decompression or shoulder surgery, POSIMIR demonstrated a significant decrease in pain and opioids consumed over the 0- to 72-hour period following surgery as compared to placebo. We believe these trials support the safety and efficacy of POSIMIR in the postoperative pain and meet the requirements to be considered pivotal clinical trials. In all, the company has completed 16 clinical trials in the POSIMIR program involving over 1,400 patients with over 850 of who receive POSIMIR and the remainder are control groups.

Insufficient postoperative pain control remains a significant problem with studies indicating that approximately 65% of patients experience moderate to severe pain after surgery. New non-opioid pain products are much needed in the postoperative pain setting, and we believe that POSIMIR could be an important contributor, if approved. If approved, we would plan to license POSIMIR to a partner with excellent commercial capabilities. Given the potential value of POSIMIR, we believe the deal could garner significant economic terms.

Now to the Gilead deal. In July, we signed a license agreement with Gilead to develop and commercialize a long-acting injectable HIV investigational product, utilizing our SABER technology. We’ve received $35 million in upfront, milestone, with fees plus R&D funding since signing the deal. The product is currently being reformulated and will undergo additional preclinical development work.

The final product I’ll update on today is PERSERIS. Under our agreement with Indivior, we receive quarterly earnout payments based on a single-digit percentage of U.S. net sales for PERSERIS, a long-acting injectable antipsychotic. The product was launched at the end of February in 2019 by Indivior and has been — they’ve given guidance for this year of between $15 million to $25 million in sales. As it’s still early in the launch, we’ve received modest earnout payments so far.

In summary, data from the DUR-928 AH Phase IIa trial is compelling. And compared to historical data suggests that the drug may be life-saving for patients who have no good therapeutic options in a condition with a high mortality rate. The AASLD granted us an oral late-breaking slot to present the trial results at their annual conference known as The Liver Meeting. Dr. Hassanein, who is one of the principal investigators, presented the trial results including impressive data on important endpoints like bilirubin, Lille and MELD scores. The study results were also honored with the inclusion into the Best of The Liver Meeting summary slide deck in the alcohol-related liver disease category.

In addition, Dr. McClain from the University of Louisville, presented a poster at the liver meeting showing the severe AH patients treated with 928 in our study had significantly better outcomes as compared to similarly severe AH patients treated with corticosteroids in a contemporaneous study. We believe that DUR-928 has the potential to be lifesaving in AH patients, and we plan to start a Phase IIb placebo-controlled AH trial in the middle of this year. We announced today that we have already exceeded the 60-patient enrollment goal in our DUR-928 28-day NASH trial and remain on track to report data in the middle of this year.

Post the advisory committee meeting, we continue to interact with the FDA as they continue their review of POSIMIR. We look forward to potential approval of POSIMIR and a potential commercial partnership. Most of all, we’re looking forward to a DUR 928 may be able to do to help patients with devastating conditions, such as alcoholic hepatitis.

Congrats on all the progress. Just in terms of this NASH study, can you talk a little bit more about what you’re hoping to see, particularly after the 1-month time point? Are there particular biomarkers that you’re most focused on as being predictive of activity? And then since you added the higher dose level versus the last Phase I fee, what’s your expectation for the dose relationship that you’ll see? And do you expect to see greater activity at the 300 mg BID dose?

Sure. This is WeiQi Lin. I’ll answer the question from Elaine. So I think that for this NASH study, we will certainly look at all the clinical chemistry data as well as biomarkers. Remember that we did a Phase Ib single-dose trials in Australia, in several years earlier was in those patients, including cirrhotic patients. We saw some significant reductions following the single dose of bilirubin and also CK-18, both cleaved CK and a full-length CK-18 as well as a couple of inflammatory markers were down at 12 to 24 hours. So for this repeated dosing because it’s a daily oral dosing for 28 days, we’ll see what other markers are maybe CK-18s or other inflammatory markers, similarly, will be affected following repeating dosing. Of course, these patients are F1 to F3, they are not including as full patients as we get in the single dose. However, all the clinical chemistry and other — including ALT, AST and then bilirubin and biomarkers including CK-18, inflammatory markers like interleukins as well as the imaging data to look at the liver fat and its stiffness. So well, basically, it’s like casting the net, we’ll see how much we’ll influence — what kind of biological signals we are going to achieve following repeat daily dosing, even though it’s only 1 month. Then the study results can help us to design the next phase NASH trial.

With regard to the dose response, we don’t know. We’ll have to see. We did cast out a very wide dose range from 50 to 600 milligrams per day. So this wider range, following daily administration of the drug, we’ll have to see what markers are primarily moved by what those levels. So in other words, the daily dosing may be or may be not acting the same way as the single dose. That wouldn’t give us clue that what our next dose we all know for the NASH, it’s a long-term administration of the drug. So it’s not like an age trial with a single or 2 doses at most. So that after repeating dosing, what kind of markets were moved, and then what do we need a lower dose or do we need a higher dose in terms of for the NASH patient population. I hope that helps.

Yes. I think that’s important to note. We did cast the net very wide, as WeiQi said, there’s a tenfold difference between the low and the high. And the concept behind that was to get a sense of where we’re going to go because we don’t know what dose to go forward with. So we’re going to be circling the lower end and exploring around there or the higher end, or did we find the bracket. And is there something in between. So that’s where we’re going to go.

Very impressive data on AH indeed. Very quickly, can you dig a little deep based on your dialogue with the agency on some of these working assumptions. The time line seems a little — I was thinking more of 2021, but it seems like 2022. And like, could you maybe talk to the longer-term survival endpoint also, like what was your thinking there? Is it a 3 months versus 6 months? And what you’re hearing from KOLs around that?

Yes. Yes, we’re working with KOLs, with a lot of them, actually, as you can imagine. But we had a team that was at the — there was a meeting that’s been — that had 2 of these meetings now. And the last one was in October of last year, and it was a meeting of the European and American Associations for the Study of Liver Disease. So it was AASLD, and it was EASL from Europe and the FDA. And these 3 groups got together, particularly around alcoholic liver disease, in general, and focusing a lot on alcoholic hepatitis because it’s such a horrific problem. There’s really no good answer out there. And so a lot of time was spent talking about endpoints and the like. And so coming away from that meeting, we believe the duration that we will be pursuing, in fact, the duration we’ve suggested in the trial, we’ll see what the feedback is at the end of it all, but it looks to be a 90-day follow-up for 90-day mortality. And we’ll be looking at Lille as well on prognostics side and then, obviously, all the other indicators in between, but that’s the thought. First, how long does it take to do the study. We’re basing our estimates now on what we can glean from what’s been done before. And there’s really not been a successful trial yet. It’s a trial done by Gilead, where they enrolled 100 patients. In 18 months, they follow them for 6 months, and they used, I think, more than 40 centers, something like that?

50 centers. Yes. So we’re going to have a lot of centers. We’ll have centers in the U.S. and in the EU. Certainly, if we can conduct a trial more rapidly, we’ll and we do everything we can, but we’re trying to be realistic to the point, even maybe a little on the conservative side, say, in 2022, just to.

Okay. Great. And then I had a follow-up on NASH. Is there any reference point you could guide to how to think about the ALD market, in particular, or even the liver fat when you think about the epigenetic modulator mechanism?

Yes. I’ll let WeiQi further if she wants to add up behind me. As there haven’t been, as you know, because I know you follow the space very closely, there aren’t any really good biochemical markers. That’s why people use biopsy, right, to really define NASH. And so you collect everything you can and try to get — how to read the tealeaves as it were from all of the data coming from these patients. We will be gathering imaging data from MRI-PDFF for liver fat and FibroScan for stiffness at a month. That’s not something that’s typically done is people look at a month for these things. So if we see some changes, we’d be wonderfully excited to do to see that, but being more difficult to put that in relationship to others in most other — everyone else does 12-week, the longer studies. I don’t know, WeiQi, would you want to add to that?

No, I think that’s correct. And then with a 4-week daily treatment, we’ll certainly look at all the markets change, of course, the tough target will be the PDFF, change liver fat content and stiffness change following treatment.

Right. Okay. And the high dose and also learnings from the AH in acute injury model should definitely help to see some of that. Just one more on, if I may, on POSIMIR. When you say active review with the agency, would you be able to go into any more detail if it’s about labeling or if it’s about any other additional requirements? Any other color you might be able to give there, because obviously, the user goal date is not there to work with?

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Michael H. Arenberg, DURECT Corporation – CFO (18)

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Yes, Mayank, it’s — we can’t really give any more guidance about what the nature of the interactions have been. We just wanted to convey that there is activity going on because without the PDUFA date and after the Ad Comm, we just wanted people to be aware that there seems that the FDA is continuing their review actively. So that’s really all we can say, though.

Okay. And last thing with you, Mike, the spend, how to think about — obviously, NASH is a big swing factor, whether you do go ahead with a bigger study on the back half of the year. But just your runway. Are you not giving any guidance to where this takes you?

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Michael H. Arenberg, DURECT Corporation – CFO (20)

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Well, we don’t give guidance on future cash spend because there’s a lot of factors that we’ll be reviewing in real-time that will decide that. But our historical burn rate has pretty consistently been $6 million a quarter. It will probably go up a little bit this next year given the advancing stage of some of the trials we’re doing. So — but beyond that, I don’t want to give any specific numbers.

Well, it’s really the mechanism of the drug is very different. We know 928 is an epigenetic regulator and there’s dysregulation in the liver in — for a number of diseases, but certainly for alcoholic hepatitis. And we know from some papers that have been published that — which part of the epigenome is dysregulated and we know 928 interacts there. And so can — there’s a good mechanistic reason for why. And then we have all the good animal data that suggests that. And the trial that Gilead did was that ASK1 inhibitor. So it really is just hitting 1 component. If you look at the multiple pathways in 928 associated with it would be 1 out of — I don’t even know, a dozen or so. And so it really probably didn’t have the breadth of reach to be able to do something for the patients. And certainly, the results from 928 reflect that outcome. I don’t know, WeiQi, would you add?

Yes, that — actually, there is a very good publication just the recently came out in 2019. It was published by Argemi and others, bunches of authors, and then the lead author is Professor Bataller from the University of Pittsburgh. And then they actually studied the patient samples of some alcoholic hepatitis. They found that patients with alcoholic hepatitis, they have a lot of master regulators were dysregulated in the hepatocytes, and then which causes epigenetic dysregulation. So it’s a very good article and a very detailed study on what went wrong with the alcoholic hepatitis patients. So from that article, actually, one can take a look at it, why some drugs, if they have a singular target, may not work. And then — but then the drug with multiple targets and particularly acting at a very higher up level of master regulators might work well, which is the case of DUR-928.

Excellent. That’s very helpful. And then lastly, why did you include — as we’re trying to figure out a little bit the NASH space and what F1, what F2 or F3 really is. And how to differentiate the different stages. Why did you include F1s in the repeat dose and why exclude F4, I guess?

Yes. Well, we would have loved to include the F4. But in Australia, we were able to, but we hadn’t done the study in severely damaged patients, in F4 patients with 928 for the U.S., so they didn’t allow that. I can tell you in the interim, we’re doing that work now. And so we will be free to dose any patients going forward. But that was the reason why, and so we included the earlier stage patients, which if you think about the potential of 928, it’s not that it can’t — might be able to help these patients, but it really is, if you look at what’s doing in AH patients, it’s really a drug, I think, that’s — I’m looking forward to it being able to help the severely ill. I don’t know. WeiQi?

So as FDA required before you go into the liver disease, the patients, so you have to go into the mild, moderate and severe hepatic impaired patients. So that’s how we actually did mild hepatic impaired patients at a time when we initiated the NASH study, we haven’t started moderate and severe hepatic impaired patients. Although, in our AH patients, we have a lot of severe hepatic function impaired patients. But then these are by injecting regardless, they reached the drug level reached a much higher plasma concentrations. However, because it’s different dose routes. So we still have to do the oral route administration in the moderate and the severe hepatic impaired patients before the agency would allow us to move into the F4 patients in the U.S.

So last year, while we were finishing up the long-term talks to allow for unlimited dosing, at the same time, we’re doing this other work. So now, we’ll be in a position, post this 2018 NASH trial to be able to have the freedom to dose the patients that we’d like to and think we can help to the durations that makes sense of dose range, too. Sorry.

Okay. And WeiQi, your answer is great. It’s very helpful for what to kind of expect, and when you’re looking at biomarker-wise for the repeat dose. But is there any chance — obviously, single dose, repeat dose, these are different trials. Is there any reason that it would be difficult to see a real read through between the data on the single dose and the repeat dose?

Well, that’s — I think if you look at the DUR-928 because it’s a first-in-class epigenetic regulator so there is no similar to us like that previously. So the single dose and the multi dose, they could be different because the mechanism of action, because as they regulate at the epigenetic level and then working on the master regulator. So the repeat dosing and a single dose, they — sometimes these epigenetic regulators, they could have a long-lasting effect. And then depends on the disease state and then depends on individual patients, and then when you give repeat dosings, some — if some effects are long-lasting and then some effects are short lasting. So in other words, the single dose versus a repeat dosing can be different. So that’s why we have to look at — we are not saying, well, we won’t look at a single dose data. In fact, we’ll have to incorporate all the datas we achieved so far, including the AH patient data to consolidate and then get a sense of what a repeating dosing for the even longer term, longer than 1 month daily dosing will be like.

Yes. I mean, there’ll be things that we’ll need to understand is, including dose regimen going forward. For AH witness that we’re dosing on Day 1 and then again, 3 days later. We’re not dosing every day because you get this — it’s really a master regulator, master switch changing. And so when you have that kind of thing occurring, these effects can last for a while. So to determine the frequency with which to modulate that switch is something that needs to be also understood as we go forward.

This is Edwin Zhang for Adam. I have a follow-up question on AH Phase IIb design. So what are your working assumptions on the total patient enrollment? How many patients are going to be enrolled? And how many drug arms in the trial? And also, do you have any change regarding the patient inclusion or exclusion criteria compared to the Phase IIa?

Those are great questions. Yes, I’ll start with the last one first. Yes, in this trial, we’re not going to be including moderates. We’re looking to severe patients because these are the ones that really need our help. Not that the moderates don’t have or very ill and their livers aren’t severely damaged, but the severe ones are the ones where you can see — they have the greatest opportunity to see a difference. And so we’re going to be looking at patients with higher MELDs and on higher — what they call Maddrey discriminant function scores. And as far as the dose level is concerned, it will be the severe patients, I guess, that’s one quick answer. And then with regard to the dose groups right now, we’re looking at 30 milligram, a 90 milligram of 928 as compared to a placebo. And so those are the 3 arms that we’re looking for. Don’t have final numbers now. We’re estimating maybe 50 patients per group is what we’re thinking currently.

Congrats on the recent progress with 928 in both AH and NASH. So some of my questions have been asked already, but I did want to ask a couple here. First, to confirm in the NASH study that you’re fully enrolled now. Could you remind us again, I didn’t quite get it earlier when you spoke about the range of doses? And how many of those doses, I think it went from 60 to 600 mg, but I just wanted to be sure.

Yes, we — there are 3 different dose groups, and they’ll each have 20 patients per group, a couple of more because we’re — we’ve enrolled more than 60 by the time the trial was completed. But we’re looking at dosing, we have dosed to 50 milligrams once a day and 150 milligrams once a day and then 300 milligrams twice a day for a total daily dose in that last group of 600 milligrams. So the range is more than tenfold, daily exposure between the 50-milligram group, single dose and the 300 BID. So that’s the dose range.

Okay, great. And then just turning to the design that you’re working on for the Phase IIb AH study later this year. I understand that there’s — you’re setting a precedent here, and you don’t really have much to go on, and it is a bigger trial than Gilead. But just thinking about the time line that may go into 2022 before we get a readout. Just wondering if there are any plans for any sort of an interim look or any sort of advanced looking to either safety or efficacy?

Yes. We’ll certainly have safety, always be monitored. But as you start to look to have a peak at efficacy, you get into these Bayesian statistical analysis and all the rest, that kind of stuff, it becomes quite complex and can weaken the power of your study. And so it’s not something that we’re embracing right now. We’re looking to be more straight up and just to evaluate those 3 — those groups that I described earlier, in a head-to-head to head trial, basically. And that being said, we’ll have to see how the enrollment goes. I think we’re being realistic. I think WeiQi and the team are being realistic in their estimate right now. And if we get fortunate, maybe things happen more rapidly, but you can’t bank on it. I think we should just consider it is what it is. You have to remember the difference is. If the difference at the end of that, let’s say, it does take 2 years. But at the end of that, we’ll have — if it works as it has before in the other 19 patients will have a therapy that can be life-saving in a condition that affects more than 100 — more than 120,000 people this year. Hospital presentations every year for this disease state, that’s their quoted for that, very costly, $50,000 or more per, some end up going to liver transplant. So the cost on the health care system and the potential to save lives is dramatic. So the value we’ll have for the health care system, for the patients and for shareholders of Durect is dramatic. It’s absolutely — just dramatically different from where we are today, where we sit today on a value of the company and the prospects. So it’s 2 years. 2 years, always will go by, right? And at the end of that, we could be in a very different spot.

And just to confirm, well, I think this is still to be seen, but there is the prospect at least that if the results are clearly positive as they were in the earlier 19 patient study, that this Phase IIb could pose the potential of being 1 of 2 confirmatory pivotal study.

It might be enough by itself, if the data are good enough. It may be adequate for approval. That’s something that we’ll just have to see as we go forward. And what the data will dictate. If the data are as you just suggested, are as good as they — we have seen or close to that, then that would be, I would think, would hope would be enough to be able to get it out there to save lives because you’re talking about a lot of people dying every year that might not need to die if this drug were available today.

Yes. And then just one last follow-up for me, Jim. And that is on your release today, one of the milestones you mentioned with the new potential license and collaboration agreements. Could you just expand on that a little bit for us?

Yes. I really can’t expand beyond what the — we have these things that we call feasibility agreements that we always have as an underlying component where we have people in our drug delivery side of the business you’re working on. And occasionally, one of those things matures to the point where we put in place a development deal. This happened with Santen, with the ophthalmologic project happen with Gilead, with the HIV product, and it has happened with others over time. But we always get the difficult projects. And so they are — that’s why we don’t talk about every feasibility deals because for every half a dozen that we work on, maybe 1 goes forward, maybe for every 10, 1 goes forward. So they’re always difficult projects. And — but if you’re successful, it’s tremendously valuable for the health care system and the patients and ourselves and our partners, potentially.

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Operator (44)

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This concludes the question-and-answer session. I would like to turn the floor back over to the management team for closing comments.

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Michael H. Arenberg, DURECT Corporation – CFO (45)

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Thanks again, everyone, for joining. And we’re out of time. We’re excited about the progress we’re making and look forward to a great 2020.